The overall outlook for commercial real estate development in northern Nevada is positive, with industrial activity being the driving force behind the growth of our local economy. The degree of strength for each sector always depends on supply and demand, and the key within that equation to look for in 2016 is pricing. The industrial sector is booming and will continue for many years.
There is virtually no supply, robust and steady demand, and as a result pricing has increased to justify development. New companies coming into town translates into population growth, new jobs, new residential construction, and expanded goods and services.
The challenge and the opportunity for our community is balancing this industrial growth with office growth, attracting new office users into our area, especially technology and healthcare companies. These companies are essential in providing further diversification within our economy and higher paying jobs. It appears as though the national attention we have received on the industrial side is starting to translate into new office users in these areas looking at northern Nevada as an option to relocate or expand. As supply dwindles, this will foster new development as there are few Class A options in our market.
Currently, there is a gap in pricing between current office rental rates and what pricing is needed for new office development. In 2016, McKenzie Properties will build the first speculative office building since 2008. We feel that there will be a select group of users who are willing to pay a premium for a new Class A building in a great location, but widespread office development will depend on outside market demand. Supply is starting to diminish, so look for rental rates to increase next year and new entrants into our market to inspire new development.
Retail real estate is undergoing a massive transformation with Internet sales cutting into bricks-and-mortar sales. We are seeing the effects of this transformation on the industrial development side of the equation. Big boxes are the new retailers.
The smart non-food retailers are using both channels to deliver a level of service that bricks-and-mortar retailers alone cannot compete against. As a result, mom and pop retailers are challenged with finding innovative ways to attract and retain customers. Thus traditional retail development will be limited to national users in the foreseeable future. Overall supply is still quite high, and new projects will be aimed at companies looking to either enter or expand their footprint in the area. Expect some, but limited development mainly in the expanding South Reno area.
We are living in exciting times. Northern Nevada has always held unlimited possibilities, and now is the time when the greatness of our area is being realized. Our community has a tremendous economic opportunity in the upcoming years, which will allow us collectively to reinvent and reimagine this wonderful place we call home.
Todd McKenzie is the principal at McKenzie Properties.